TaxTMI 
TaxTMI 
2021 (10) TMI 1455
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.... gone wrong in disallowing expenses for earning dividend income to the extent of Rs. 7,21,646/- by considering those Investments on which no dividend has been received by the assessee company during the year; 2(c) That the Ld. Commissioner of Income Tax (Appeals) has gone wrong in disallowing expenses for earning dividend income to the extent of Rs. 7,21,646/- by considering term loan interest & working capital loan interest as the chart filed by the assessee company depicting that the investments have been made out of internal revenue generation / profit earned during the year and not out of borrowed funds has not been considered; 2(d) That the Ld. Commissioner of Income Tax (Appeals) has gone wrong in disallowing expenses for earning dividend income to the extent of Rs. 7,21,646/- by considering those Investment on which no exempt income is receivable either in the form of dividend or in the form of capital gain; 2(e) That the Ld. Commissioner of Income Tax (Appeals) has gone wrong in disallowing expenses for earning dividend income to the extent of Rs. 7,21,646/- by considering interest paid on loan taken only for business purposes;....
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....tted that during the year under consideration, the assessee has earned exempt income in the shape of dividend of Rs. 14,87,335/-, which is shown in the balance sheet under Schedule-14. The assessee further claimed that it has not incurred any direct or indirect expenditure for earning exempt income. The assessee has also explained that it has made suo-moto disallowance of Rs. 49,886/- in respect of expenditure attributable to exempt income in the computation of income as per Rule 8D of Income Tax Rules. The Assessing Officer was not satisfied with the reply of the assessee as well as the suo-moto disallowance made by the assessee and proceeded to make the disallowance on account of interest expenditure proportionate to the total asset/average asset to the average investment in shares. Accordingly, the Assessing Officer has made the disallowance u/s 14A on account of interest expenditure of Rs. 7,11,740/- and on account of administrative expenses calculated @ 0.5% of the average investment amounting to Rs. 59,792/- as against suo-moto disallowance of Rs. 49,866/-. Consequently, the Assessing Officer has made net addition of Rs. 7,21,646/-. 6. The ass....
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....e investment made and therefore, the interest paid by the assessee on its borrowed money should not be considered to be expenditure incurred in relation to tax free income and consequently there should be no disallowance u/s 14A of the Act. Thus, the Ld. Sr. Counsel has submitted that in case of mix fund made up partly of interest free fund and partly of interest bearing fund the investment must be considered to have been made out of the interest free fund. Hence, he has contended that in view of the interest free fund of the assessee more than sufficient of the amount of total investment in shares, no disallowance is called for on account of interest expenditure. 9. On the other hand, Learned DR has relied upon the orders of the authorities below and submitted that when the assessee is having secured as well as unsecured loan to the tune of Rs. 197 Crores then in absence of any details of utilization of the unsecured loan the interest paid on loan would be apportioned by treating the same incurred for the purpose of earning the exempt income as per formula provided under Rule-8D of the I.T. Rules, 1962 (hereinafter 'the Rules). 10. We have considered the rival submissio....
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....allowance of deduction u/s 10B of the Act to the extent of Rs. 13,48,416/- which is wrongly mentioned in the ground as Rs. 18,56,215/-. During the course of assessment proceedings, the Assessing Officer noted that the assessee has claimed deduction/exemption u/s 10B of the Act in respect of two units situated at Faridabad and Noida respectively. The Assessing Officer has restricted the claim of deduction in respect of Noida unit by reducing a sum of Rs. 9,62,364/- being not received in foreign exchange within the prescribed time limit. Consequently, the Assessing Officer computed the deduction by reducing the export turnover. The Assessing Officer has also excluded other income from the profits of the unit for computing the deduction u/s 10B of the Act as the assessee credited miscellaneous income of Rs. 6,22,400/- on account of scrap sale and compensation income of Rs. 3,75,594/-. Similarly, the miscellaneous income on account of scrap sale were also credited in respect of Faridabad unit, the Assessing Officer restricted the claim of deduction by excluding all these amounts from the eligible business profits. 12. The assessee challenged the action of th....
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....lso referred to the order of assessment passed u/s 143(3) of the Act for the immediately preceding assessment year 2006-07, wherein the AO had himself accepted that miscellaneous income and compensation income was profit derived from the undertaking as no disallowance was made. It was also submitted that miscellaneous income and compensation income have been treated as business income and, as such, in accordance with subsection (4) of section 10B of the Act, both the aforesaid items of income should be profits derived from the export, as the assessee had not made any domestic sales and all the sales of the assessee was export sales. In respect of compensation income, it was submitted that same had direct nexus with the profits of the assessee as compensation income was unclaimed salary/leave with wages, which was originally debited while computing the income of the undertaking, but when the same was not claimed, the same was credited and, as such, the same also had direct nexus. In support, the Ld. AR also filed the ledger account as well as the chart indicating that in the preceding assessment year 2006-07, compensation income received by the assessee had been treated as profits d....
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.... terms of directions as given by the Tribunal for AY 2007-08. 17. As regards the reduction of the export turnover on account of the amount have not received in foreign currency we find that if any sum is reduced from export turnover then the same is also required to be reduced from total turnover because the total turnover comprises of export turnover and non-export turnover. Therefore, following the decision in the case of CIT vs Genpact India (supra) we direct the A.O. to recomputed the deduction u/s 10B of the Act by reducing the said amount from total turnover also. 18. Ground no.4 is regarding the disallowance made u/s 40(a)(i) towards payment made in foreign currency. 19. During the course of assessment proceedings, the Assessing Officer noted that the expenditure incurred in foreign currency includes a sum of Rs. 1,15,64,807/- under the head other expenses. The Assessing Officer further noted that the assessee has not clarified what constitutes the other expenditure, even the details of tax deducted at source and paid were not submitted. Accordingly, the Assessing Officer disallowed the said amount of Rs. 1,15,64,807/- u/s 40(a)(i) of the Act as the said p....
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....cy for purchase of spares, general charges and bank charges are excluded from the disallowance. 23. We have considered the rival submissions as well a material available on record. At the outset, we note that the Assessing Officer has made the disallowance of Rs. 1,15,64,807/- u/s 40(a)(i) of the Act for want of TDS as well as the explanation of the assessee. The Ld. CIT (A) has granted part relief to the assessee in respect of expenditure incurred for bank charges, spares parts and general charges. The rest of the disallowance to the extent of Rs. 62,71,694/- was confirmed by the Ld. CIT (A) on the ground that the assessee has not able to substantiate its claim of nontaxability of these amounts in the hands of the recipient by producing supporting relevant details as to the residential status of the payee and the relevant provisions of DTAA. We find even before the Tribunal, the assessee has not produced the relevant details of the residential status as well as the respective DTAA between India-UK and India-USA. Though, it is contended by the assessee that in view of the Article-7 of the DTAA, the income is not taxable in India in the hands of the recipient however, n....
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....er any unsecured loan is taken by the assessee for specific purpose being part of the capital working in progress. As regards the unsecured loans, it is primary onus of the assessee to prove that the unsecured loan is not utilized for the expenditure incurred towards capital work in progress. In the absence of these specific details, this issue cannot be decided conclusively. Accordingly, in the facts and circumstances of the case, we set-aside the issue to the record of the Assessing Officer for verification of the facts regarding purpose of taking secured and unsecured loans and also to verify the details whether any part of the loans was utilized by the assessee in respect of the expenditure forming part of the capital work in progress. The Assessing Officer then decide the issue after giving an opportunity of hearing to the assessee. 30. For the AY 2011-12 and 2012-13, the assessee has raised the following grounds. Ground of Assessment Year 2011-12 1 That the order of the Ld. Commissioner of Income Tax (Appeals) is contrary to law and the facts of the case and is required to be quashed; 2(a) That the Ld. Commissioner of Income Tax (Appeals) has gon....
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....ong in disallowing a sum of Rs. 26,62,862/- by presuming that the provisions of TDS as required u/s 195(2) read with section 40(a)(i) has not been complied with by the assessee company. 5. That the Ld. Commissioner of Income Tax (Appeals) has gone wrong in disallowing a sum of Rs. 14,41,183/- towards proportionate interest on capital work in progress; 6. That the appellant reserves the right to add, alter, amend, delete, any/all grounds of appeal either before or at the time of the hearing of the appeal. Ground of Assessment Year 2012-13 1 That the order of the Ld. Commissioner of Income Tax (Appeals) is contrary to law and the facts of the case and is required to be quashed; 2(a) That the Ld. Commissioner of Income Tax (Appeals) has gone wrong in disallowing expenses amounting to Rs. 8,36,181/- for earning dividend income; 2(b) That the Ld. Commissioner of Income Tax (Appeals) has gone wrong in disallowing expenses amounting to Rs. 8,36,181/- for earning dividend income by considering those Investments on which no dividend has been received by the assessee company during the year; 2(c) That the Ld. ....
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.... grounds of appeal either before or at the time of the hearing of the appeal. 31. The majority of these grounds are common to the grounds for AY 2010-11. We will discuss in brief each of the ground for these two Assessment Years. 32. Ground No. 1 is general in nature and does not require any specific adjudication. 33. Ground No. 2 is regarding the disallowance made u/s 14A, which is common for both the assessment years and identical to the AY 2010-11. Accordingly, in view of our finding on this issue for the A Y 2010-11 the ground no.2 stands disposed of in the same terms. 34. Ground No. 3 is regarding the disallowance of deduction u/s 10B/10AA. This common ground is also identical to the ground no.3 for AY 2010-11. In view of our above finding on this issue for A Y 2010-11, this ground stands partly allowed. 35. Ground No. 4 for AY 2011-12 regarding disallowance made u/s 40(a)(i) of the Act. This ground is identical to the ground no.4 of the AY 2010-11. In view of the our findings on this issue for the AY 2010-11, this ground stands dismissed. 36. Ground No. 5 for the AY 2011-12 is identical to the ground No. 5 of AY 2010-11 therefor....